Some States Cancel Sales Tax Holidays

Parents getting their kids ready to go back to school are getting a tax break in about one-third of the states. The sales-tax holidays cover items from clothing to sports equipment and computers. Some are questioning the wisdom of providing the tax breaks when so many states are cutting services and searching for ways to fill budget gaps, but the holidays are extremely popular with consumers.

Shoppers Love It

Parents — and even people who don't have kids — are excited about the tax-free days.

"A lot of people are struggling and so they look at it as being really very helpful," says Ann Riggsby outside an Atlanta-area Target store.

Riggsby says she may buy clothing and school supplies for her niece and nephews — and perhaps an outfit for herself. Even though the state faced a more than $2 billion budget deficit this year and recently had to make additional cuts, including teacher furloughs, Riggsby says she's glad Georgia didn't cancel its tax-free weekend.

"I tell you I did have that thought, can we really afford it, as a state with the schools, teachers taking three days off," she says. "But you know, this kind of cuts across helps everyone and this is the time of year when people with kids, they have to buy things."

Another shopper, 18-year-old Stephanie Horman is looking forward to starting college. She and her parents are thrilled about the prospect of a tax-free laptop computer.

"They're big into it, I guess," Horman says. "My mom keeps telling me 'if you need to get more clothes, get it this weekend for tax free,' stuff like that."

Horman says lots of people would be upset if the state had canceled its tax-free weekend. This year, Georgia joins 15 other states in holding the sales-tax holidays. They started over a decade ago in New York, when the economy was thriving.

In most states, clothing under $100 is tax free, but accessories including wallets, handbags and watches are not. And computers are exempt, but most states have limits. In Georgia, it's $1,500.

Strong Support By Retailers

"Retailers are wildly supportive of this," says Maureen Riehl of the National Retail Federation.

Florida and Illinois failed to approve the holidays this year, and Washington, D.C., cancelled its scheduled tax-free weekend because of budget problems. But Riehl argues states generally don't lose much revenue.

"When people come into to take advantage of the sales-tax holiday, they usually buy with it other taxable items," Riehl says. "So, while there may be a little dip for those two or three days, it spreads out over time and arguably they're making up for it with additional purchases in taxable item categories."

Retailers say tax holidays stimulate the economy because they increase foot traffic in stores and encourage people to buy something now that they might otherwise put off for later.

Might Not Make A Difference

But some analysts argue that consumers don't buy more but instead, shift their spending.

"I think it affects more the timing rather than the total overall amount people are going to spend," says Kim Reuben, an economist at the Urban Institute's Tax Policy Center.

She adds, "And if you think now people are tightening their budgets, it's not clear me to that having a sales tax holiday is going to make people go out and buy things that they can't afford or that we necessarily want them to go out and buy things that they might not be able to afford."

A Good Idea, But No Longer Applicable?

Reuben says the tax holidays were a good idea when the economy was doing well and states were adding money to their coffers. But with tax revenue declining in just about every area, she says state officials should reconsider the idea.

"I think, in general, they should be thinking about what's happening — long run," she says "And you know if you're giving them a break for a day and then you're going to end up having to raise taxes, I don't know if that's really smart.

Overall, the popularity of tax-free "back to school" days has grown. This year, Mississippi held its first tax-free holiday and other states have added additional tax-exempt periods to encourage people to buy hurricane preparedness items along the Gulf Coast and energy saving appliances across the country.